Markets

How Pier 1 Fought Its Way Back to Profits

By Carol Tice

Updated on: October 26, 2010 / 8:38 PM EDT / MoneyWatch

Pier 1 (PIR) was in trouble even before the downturn hit. But president and CEO Alex Smith made some tough calls after coming aboard in 2007 that have brought the nearly 50-year-old home-decor chain back from the brink.

Margins, profits and comparable-store sales are all shooting up again. Meanwhile, competitors including Linens 'n Things and Bombay Co. were imploding.

How'd they do it? Here's a look at Pier 1's winning turnaround strategies, as reported by the Dallas Morning News:

Kill off the catalog and ecommerce. Let's face it -- selling online can erode store sales. Also, much of what Pier 1 sells is pretty breakable and/or heavy, so shipping goods by mail may have been sub-optimal. And the fun of Pier 1 is the in-store browsing, anyway. Cutting ecommerce and catalog put the emphasis back on the treasure hunt in stores, and brought customers back. Now, the company is slowly easing back into ecommerce with a searchable database of store inventories that helps customers locate goods available in their local stores.
Close dog stores. While some chains hesitate to shut units with low sales, Pier 1 moved boldly to shrink the chain down to a size consumer demand would support. It now has 1,048 stores, down about 150 stores from 2007.
Hire more buyers. At a time when other decor chains were slashing their staffs, former TJX Cos. (TJX) executive Smith invested in the part of the company that really matters: Great buyers with a nose for the rare and unique finds that built Pier 1's reputation in the first place. With more than double the buying staff on the lookout for merchandise, the company is winning again at surprising and delighting shoppers. Take a look at the luscious fall vases they're featuring now, for instance.
Sell the headquarters. When Smith came aboard, Pier 1 owned a 20-story office tower worth $100 million. Selling it off, along with buying back company bonds at depressed prices, helped clear the balance sheet of debt and lower company expenses.

Now, Pier 1 is reaping the rewards of its slash-and-burn turnaround. Gross profit shot up nearly 10 percent year-over-year, to roughly 37 percent in the most recent quarter, and the company swung from a nearly $16 million loss at this point a year ago to a more than $14 million profit. Plenty of retailers would love to decorate their balance sheets with those numbers right now.

Photo via Flickr user guy schmidt's photostream
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